I listened to Boris‘s announcement on Friday and have looked at the various commentary since. I’m not sure how much it’s added to the plan that was already in place. The big change, however, is perhaps the attempt to get people “back to work“ – in the sense of actually getting them away from home and into an office or other. The guidelines have changed so that, whilst working from home is still considered to be a very preferable option, the suggestion is that employees should be having discussions with staff about whether this continues to be an effective and efficient form of working if it ever was (my italics)!
Otherwise significant normality by Christmas? Who knows? I think, however, that most people would require a major change in the current guidelines even to be able to fit people around the table for Christmas lunch at a metre - the idea that we can all eat our Christmas lunch with masks on is a rather surreal image.
Time will, as always, tell.
On Tuesday HMRC announced it’s extension to Making Tax Digital (MTD). At the moment VAT registered businesses who have an annual taxable turnover above the current VAT registration threshold of £85,000 have to hold their financial information digitally in MTD compliant software and submit their VAT returns directly from that software. Tuesday’s announcement means that all VAT registered businesses will have to comply with MTD for VAT for returns starting on or after 1 April 2022.
In addition, the announcement said that MTD for Income Tax would start for self-employed businesses and landlords with a business turnover above £10,000 for accounting periods starting on or after 6 April 2023. MTD for Income Tax was first announced in 2016, was due to start in April 2018, and a pilot has been running since April 2017. But in July 2017 it was delayed in favour of MTD for VAT – mainly due to the opposition to it. MTD for income tax requires self-employed businesses and landlords to keep their accounting records digitally and submit them on a quarterly basis to HMRC, with an extra 5th year end return for corrections and final figures.
HMRC will consult in the autumn regarding the extension of MTD to companies.
MTD is the most fundamental change to the administration of the tax system for over 20 years. We will contact clients in good time to help them to prepare through the latest transitions and make sure that they are ready in time.
The announcement last week that Rishi Sunak is requiring a complete review of the capital gains tax system but that this is ‘business as usual’ is probably no surprise.
The highest rate of personal tax that can be paid by an individual in this country is 45%. The highest rate of capital gains tax that can be paid by an individual in this country is 28%. So there is something of a mis-match between income and capital profits here.
We are also, I believe, the only country in the world that doesn’t have to pay tax when we come to sell our own home – some countries have a type of holdover relief that means that as the size of your house increases, you rise again into the next house purchase, and only have to pay it when you downsize. Whereas in the UK the house you live in, unless it has grounds in excess of half a hectare or has some other non-domestic use, can be sold without the payment of capital gains tax at all.
There are also significant other capital gains tax reliefs, for example there is no capital gains tax when the transaction is an inheritance tax one, even if there is no tax paid.
If you sell your business you will benefit from Entrepreneurs Relief which was restricted in the last budget when the Chancellor renamed Entrepreneurs' Relief as Business Asset Disposal Relief, which can reduce your Capital Gains Tax when you sell certain business assets or shares. More importantly, for disposals on or after 11 March 2020, he reduced the lifetime limit on capital gains qualifying for the relief from £10mn to just £1mn. This is still a valuable relief for smaller owner-managed businesses however, and can reduce the tax to 10% of the gain. For full details see https://www.gov.uk/business-asset-disposal-relief. Not a welcome change perhaps but it’s still very beneficial for most small business owners giving rise, if the conditions are met, to a very attractive rate of only 10%.
No doubt there will be a consultative document arising on the basis of any major change here to which we will respond.
I guess the only tax planning advice that can be made here is to say that if you are thinking of selling an asset - any asset - perhaps getting on with it is a good idea! This obviously has to be caveated in that it’s never a good idea to just do anything for tax reasons especially when those tax reasons are based on a potential rather than actual change in legislation. That would be an extreme case of letting the ‘Tax Tail wag the Commercial Dog’!
What is increasingly becoming apparent is the lack of planning many businesses have regarding their cashflow requirements in the next year. A basic cashflow forecast doesn’t have to take very long to prepare but can help you to answer key questions, for example: will I have enough cash to see me through the next few months or a year?; how much additional cash am I going to require?; will I be able to repay a loan? If you know what the problems are likely to be and when, you can then plan and manage those problems.
I’m particularly mentioning this because applications for the Coronavirus Business Interruption Loan Scheme (CBILS) end on 23 September 2020 – which will be here before you know it! CBILS is for small businesses with turnover of up to £45m, and provides loans of up to £5m which are 80% guaranteed by the government. When they were first launched in April 2020 it was often very difficult to get one, which led the government to launch the Bounce-Back loan scheme for loans up to £50,000. However, the banks are saying that the process for application has improved as the market has become more competitive and early difficulties with the process ironed out.
If you require more than your £50,000 bounce back loan over the coming months, then you need to apply for a CBILS before the 23 September end date – you can’t wait until later in the year because CBILS will not be available and you may have to rely on less attractive traditional finance options. A bounce-back loan can be converted into a CBIL, you cannot have both.
Some dates for your diary:
- 31 July – Furlough claims to 30 June 2020 must be submitted to HMRC by this date
- 31 July – the 2nd self-assessment payment on account (POA) of income tax and class 4 NIC is normally due by this date, but all such payments are automatically deferred this year due to the pandemic. Taxpayers can still choose to pay their tax and NIC by this date if they wish. Any deferred payments must be paid by 31 January 2021.
- 1 August – the furlough scheme changes (again) and employer national insurance (NI) contributions and employer’s pension contributions must be paid by the employer with no furlough grant for these costs available.
- 17 August – the Self-employment Income Support Scheme (SEISS) portal opens for SEISS part 2. More details will be available nearer the time, but eligible businesses need to consider if they are adversely affected on or after 14 July.
The next thoughts will be into August as I’m actually taking a week off next week, and in that there is not meant to be any major government announcement until Friday the 31st July for which we will not really get guidance until the following week. I’m hoping I might be able to escape from coronavirus regulations for a few days!
As one of the commentators that I catch weekly on the subject of coronavirus very wisely said this week, we had a BUDGET in March and we’ve had one long BUDGET ever since and that’s definitely how it feels from this side of the desk – I’ve never had to absorb so much legislation and advise so many people on it within such a short period of time.
Keep your fingers crossed that the weather is good for me as I’m walking the Ribble Way or part of it.
Until next time